Skip to main content

Evans Bancorp Reports Increase in Net Income for the Third Quarter of 2008

Evans Bancorp, Inc. (The Company) (NASDAQ: EVBN), today reported its results of operations for the quarter ended September 30, 2008.

Net income for the third quarter of 2008 was $1.43 million, or $0.52 per diluted share, an increase of $0.01 million, or 0.7%, from net income of $1.42 million, or $0.52 per diluted share, in the third quarter of 2007. Return on average equity was 12.32% for the quarter, compared with 13.45% in last years third quarter. For the nine-month period ended September 30, 2008, net income was $4.40 million, or $1.60 per diluted share, an increase of $1.84 million, or 71.8%, from $2.56 million, or $0.94 per diluted share, in the same period in 2007. In last years second quarter, the Company restructured its balance sheet by selling $45 million of securities at an after-tax loss of $1.41 million, or $0.51 per diluted share. The return on average equity was 13.03% and 8.36% for the nine-month periods ended September 30, 2008 and 2007, respectively.

Net operating income (as defined in the following Supplemental Non-GAAP Disclosure) is net income adjusted for what management considers to be non-operating items. Net operating income for the third quarter of 2008 was $1.53 million, or $0.55 per diluted share, an increase of $0.01 million, or 0.7%, from net operating income of $1.52 million, or $0.55 per diluted share, in the third quarter of 2007. For the nine-month period ended September 30, 2008, net operating income of $4.71 million, or $1.71 per diluted share, was 10.6% higher than net operating income of $4.26 million, or $1.55 per diluted share, in the same period in 2007.

David J. Nasca, President and CEO of Evans Bancorp, noted, We were pleased to see impressive loan and deposit growth continue in the third quarter. While the markets and banking industry have experienced unprecedented turmoil recently, Evans Bancorp remains healthy. We have no exposure to subprime mortgages, private mortgage-backed securities, credit default swaps, or Fannie Mae or Freddie Mac preferred stock investments. Our capital position is significantly above well-capitalized federal regulatory guidelines. It is difficult to predict the ultimate repercussions from the economic downturn on our Company, but we have been largely unaffected and will continue to actively manage our risk in an attempt to avoid any future losses.

Supplemental Non-GAAP Disclosure

To provide investors with greater visibility of Evans Bancorp's operating results, in addition to the results measured in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides supplemental reporting on "net operating income, which excludes items that management believes to be non-operating in nature. Specifically, net operating income excludes gains and losses on the sale of securities and the amortization of acquisition-related intangible assets. This non-GAAP information is being disclosed because management believes that providing these non-GAAP financial measures provides investors with information useful in understanding the Companys financial performance, its performance trends, and financial position. While the Companys management uses these non-GAAP measures in its analysis of the Companys performance, this information should not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP, nor is it necessarily comparable with non-GAAP measures which may be presented by other companies. See the reconciliation of net operating income and diluted net operating earnings per share to GAAP net income and GAAP diluted earnings per share in the following table:

Reconciliation of GAAP Net Income to Net Operating Income

Three months endedNine months ended
September 30September 30
20082007

Inc

(dec)

20082007

Inc

(dec)

(in thousands, except per share)
GAAP Net Income$1,425$1,4150.7%$4,403$2,56371.8%
(Gain) loss on sale of securities* - (1 ) (4 ) 1,413
Amortization of intangibles* 104 104 306 280
Net operating income$1,529$1,5180.7%$4,705$4,25610.6%
GAAP diluted earnings per share$0.52$0.52-$1.60$0.9470.2%
(Gain) loss on sale of securities* - - - 0.52
Amortization of intangibles* 0.03 0.03 0.11 0.09
Diluted net operating earnings per share$0.55$0.55-$1.71$1.5510.3%

* After any tax-related effect

Net Interest Income

Net interest income during the third quarter of 2008 increased to $5.13 million, an increase of $0.89 million, or 21.1%, from $4.24 million in the third quarter of 2008. Loan and lease growth and the reduced cost of interest-bearing liabilities were the main factors in the increase. Net loans and leases were $379.4 million at September 30, 2008, an increase of 5.1% from $361.0 million at June 30, 2008 and 18.7% from $319.6 million at December 31, 2007. This equates to an annualized growth rate of 20.4% for the quarter and 24.9% during the first nine months of the year. Much of the growth continues to be in the Companys commercial real estate portfolio. Total deposits were $403.5 million at September 30, 2008, an increase of 8.6% from $371.5 million at June 30, 2008 and 23.8% from $325.8 million at December 31, 2007. This equates to an annualized growth rate of 34.4% for the quarter and 31.7% during the first nine months of the year. The Company established a new retail money market product during May of this year and its success has been the primary driver of deposit growth. The Company also experienced solid growth in its core checking accounts. Demand deposit balances fluctuate day-to-day based on the high volume of transactions normally associated with the demand product. Average demand deposit growth is a better measure of sustained growth. Average demand deposits in the third quarter were up 8.5% from the second quarter of 2008 and were 5.5% higher than the prior years third quarter. Time deposit growth tailed off in the third quarter as local competition for certificates of deposit dictated unfavorable pricing conditions which the Company chose to avoid.

The Company also benefited from the cuts in the federal funds rate from September 2007 to April 2008 and their affect on other market rates. The overall cost of funds declined 78 basis points from 3.59% in the third quarter of 2007 to 2.81% in the third quarter of 2008. By comparison, asset yields in the third quarter of 2008 declined only 24 basis points from last years third quarter. These factors resulted in a higher net interest margin. The improved margin was also aided by the Companys balance sheet restructuring late in the second quarter of 2007, which significantly reduced securities and time deposit balances. The Companys net interest margin for the quarter was 4.67%, an increase of 37 basis points from last years third quarter net interest margin of 4.30%, but down 3 basis points from 4.70% in the second quarter of 2008. These margin benefits have begun to level off when quarterly results are reviewed on a sequential basis. Compared with the second quarter of 2008, the third quarters asset yields declined one basis point and the cost of interest-bearing liabilities increased two basis points from the second quarter of 2008.

Allowance for Loan and Lease Loss and Asset Quality

Net charge-offs to average total loans and leases increased to 0.59% compared with 0.42% in the second quarter of 2008 and 0.41% for the 2007 third quarter. These were primarily related to the direct finance commercial lease portfolio. The ratio of non-performing loans and leases to total loans and leases was 0.20% at September 30, 2008, compared with 0.12% at June 30, 2008 and 0.23% at the end of last years third quarter. The increased charge-offs combined with the continued strong loan growth resulted in an increase in the provision for loan and lease losses to $0.58 million in the third quarter of 2008 versus $0.28 million in the third quarter of 2007. The provision was a decrease from the $0.68 million in the second quarter of 2008 as loan growth, while strong, was still lower in the third quarter than in the second quarter. The allowance for loan and lease losses to total loans and leases ratio was 1.32% at September 30, 2008, compared with 1.38% at June 30, 2008, and 1.25% at September 30, 2007.

Gary Kajtoch, CFO of Evans Bank, commented, Our commercial lease portfolio, which is approximately 14.5% of our total loan portfolio and serves a national market, provides an average yield of 14.1% and also carries the greatest risk. We are exceptionally cautious with this component of our loan portfolio which is more susceptible to weakness in a troubled economy than our traditional commercial and consumer loans. To mitigate this risk, we have tightened credit standards and consolidated our broker network. Overall, our loan and lease portfolio remains strong, we continue to lend to commercial and residential customers according to our traditionally conservative underwriting standards.

Non-Interest Income

Total non-interest income during the third quarter of 2008 was $2.92 million, a slight increase from $2.88 million in the third quarter of 2007. Non-interest income represented 36.2% of total revenue. Insurance service and fee income, the largest component of non-interest income, improved 4.3% to $1.76 million. In August, the Evans Insurance Agency (EIA) purchased Fitzgerald Insurance Agency in its latest acquisition. EIA President Robert Miller stated, We are very pleased to add the Fitzgerald Agency to our growing presence in Western New York. We think our new customers will find our service experience to be impeccable, while the location allows us to achieve synergies with our existing business. We believe it will be a win for everyone.

The increase in the cash surrender value of the Companys bank-owned life insurance (BOLI) polices was $31 thousand for the third quarter of 2008, lower than the $151 thousand increase in the third quarter of 2007. Other income increased $81 thousand, or 18.1%, from the third quarter of 2007 to $529 thousand in the third quarter of 2008. Most of the increase is attributable to appreciation in the value of the Companys mortgage servicing rights.

Non-Interest Expense

Total non-interest expenses were $5.25 million for the third quarter of 2008, an increase of 8.1% from $4.86 million in the third quarter of 2007. Salaries and employee benefits increased $0.22 million, or 8.2%, to $2.94 million for the quarter due to the addition of new employees, including those working the Companys new branch office in Buffalo, an enhanced incentive compensation system, and increased contributions to the 401(k) savings plan. These increases were partially offset by savings related to the freezing of the defined benefit pension plan in the 1st quarter of 2008. The new branch office also drove the increase in occupancy expenses. Advertising and public relations expenses increased $57 thousand in the third quarter of 2008 compared with the prior year as a result of the Companys new branding campaign. Other expenses increased $79 thousand, or 16.7%, from the third quarter of 2007 to $553 thousand in the third quarter of 2008. A large portion of that increase was due to higher FDIC assessment charges, which was effective as of the second quarter.

Mr. Nasca noted, Assessment charges by the FDIC will be increasing significantly in 2009. When the current proposal to raise assessment charges is implemented, high quality community banks such as Evans will be measurably impacted to pay for the meltdown of the financial system.

The efficiency ratio for the third quarter of 2008 improved to 63.2% from 65.9% in last years third quarter and 63.9% in the second quarter of 2008. The improvement is largely due to strong revenue growth, particularly in net interest income.

Income tax expense totaled $0.8 million for the three month period ended September 30, 2008 for an effective tax rate of 35.6%. The effective tax rate for the third quarter of last year was 28.3%. The increase in the effective rate is a result of tax-exempt income such as interest earned on municipal bonds and the increase in value of bank-owned life insurance being a smaller portion of total income.

Capital Management

The Company consistently maintains regulatory capital ratios above federal well capitalized standards with a Tier 1 leverage ratio of 9.26%. Average equity as a percentage of average assets was 9.39% in the three months ended September 30, 2008, compared with 9.71% in the three months ended June 30, 2008, and 9.47% in the three months ended September 30, 2007. Book value per outstanding common share was $16.53 at September 30, 2008, compared with $16.44 at June 30, 2008, and $15.24 at September 30, 2007. The Company announced a $0.41 per common share dividend in the third quarter of 2008 that was paid on October 2, 2008 to shareholders of record on September 10, 2008. The $0.41 dividend is a 10.8% increase from the previous $0.37 dividend paid April 1, 2008.

Conclusion

Mr. Nasca concluded, We are gratified to enjoy another strong quarter in our core businesses. We continue to see success in our retail branches and commercial lending business and our Company has been resilient in the face of economic adversity. We are confident that our strong balance sheet and the relative stability of the Western New York market will serve us well in a difficult environment.

About Evans Bancorp, Inc.

Evans Bancorp, Inc. is a financial holding company and the parent company of Evans Bank, N.A., a commercial bank with $502 million in assets and $404 million in deposits at September 30, 2008. The bank has twelve branches located in Western New York. Evans National Leasing, Inc., an indirect wholly-owned subsidiary of Evans Bank is a general business equipment leasing company with customers throughout the U.S. Evans Bancorp's wholly-owned insurance subsidiary, Evans Insurance Agency, provides retail property and casualty insurance through 15 insurance offices in the Western New York region. Evans Investment Services, a wholly-owned subsidiary of Evans Bank, provides non-deposit investment products such as annuities and mutual funds. Evans Bancorp, Inc. and Evans Bank routinely post news and other important information on their Web sites at www.evansbancorp.com and www.evansbank.com.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, statements concerning future business, revenue and earnings. These statements are not historical facts or guarantees of future performance, events or results. There are risks, uncertainties and other factors that could cause the actual results of Evans Bancorp to differ materially from the results expressed or implied by such statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, include competitive pressures among financial services companies, interest rate trends, general economic conditions, changes in legislation or regulatory requirements, effectiveness at achieving stated goals and strategies, and difficulties in achieving operating efficiencies. These risks and uncertainties are more fully described in Evans Bancorps Annual and Quarterly Reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. Evans Bancorp undertakes no obligation to publicly update or revise forward-looking information, whether as a result of new, updated information, future events or otherwise.

EVANS BANCORP, INC. AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS

 (In thousands except share and per share data)

Three Months Ended
September 30,
2008 2007
Performance ratios, annualized
Return on average total assets 1.16 % 1.27 %
Return on average stockholders equity 12.32 % 13.45 %
Common dividend payout ratio (TTM) 41.23 % 52.23 %
Efficiency ratio 63.15 % 65.92 %
Yield on average earning assets 6.95 % 7.19 %
Cost of interest-bearing liabilities 2.81 % 3.59 %
Net interest rate spread 4.14 % 3.60 %
Contribution of interest-free funds 0.53 % 0.70 %
Net interest margin 4.67 % 4.30 %
Asset quality data
Past due over 90 days and accruing $41 $3
Nonaccrual loans and leases $741 $701
Total non-performing loans and leases $782 $704
Other real estate owned (ORE) - -
Total non-performing assets $782 $704
Net loan and lease charge-offs $550 $308
Net charge-offs to average total loans and leases 0.59 % 0.41 %
Asset quality ratios
Non-performing loans to total loans and leases 0.20 % 0.23 %
Non-performing assets to total assets 0.16 % 0.16 %
Allowance for loan and lease losses to total loans and leases 1.32 % 1.25 %
Capital ratios
Average common equity to average total assets 9.39 % 9.47 %
Leverage ratio 9.26 % 9.49 %
Tier 1 risk-based capital ratio 11.19 % 12.57 %
Risk-based capital ratio 12.44 % 13.75 %
Book value per share $16.53 $15.24
Common shares outstanding
Average-diluted 2,757,972 2,746,956
Period end basic 2,755,274 2,745,575

EVANS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (In thousands except share and per share data)

September 30,December 31,
20082007% Change
ASSETS
Cash and due from banks $13,847 $12,335 12.3 %
Interest-bearing deposits at other banks 4,585 269 1604.5
Securities:
Available for sale, at fair value 62,136 70,144 -11.4
Held to maturity, at amortized cost 2,035 2,266 -10.2

Loans and leases, net of allowance for loan and lease losses of $5,091 in 2008 and $4,555 in 2007

379,427 319,556 18.7
Properties and equipment, net 9,055 8,366 8.2
Goodwill 10,046 10,046 0.0
Intangible assets 2,442 2,507 -2.6
Bank-owned life insurance 10,999 10,760 2.2
Other assets 8,190 6,480 26.4
TOTAL ASSETS $502,762 $442,729 13.6 %
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $78,473 $69,268 13.3 %
NOW 12,635 10,141 24.6
Regular savings 141,676 92,864 52.6
Muni-vest 24,198 24,530 -1.4
Time 146,534 129,026 13.6
Total deposits 403,516 325,829 23.8
Securities sold under agreement to repurchase 3,744 3,825 -2.1
Other short-term borrowings 7,213 33,980 -78.8
Other liabilities 11,966 10,361 15.5
Junior subordinated debentures 11,330 11,330 0.0
Long-term borrowings 18,316 14,101 29.9
Dividend payable 1,130 - 0.0
Total liabilities 457,215 399,426 14.5
CONTINGENT LIABILITIES AND COMMITMENTS
STOCKHOLDERS' EQUITY:

Common stock, $.50 par value; 10,000,000 shares authorized; 2,759,700 and 2,756,731 shares issued, respectively, and 2,755,274 and 2,751,698 shares outstanding, respectively

1,380 1,378 0.1
Capital surplus 26,501 26,380 0.5
Retained earnings 17,868 15,612 14.5
Accumulated other comprehensive (loss) gain, net of tax (127 ) 16 -893.8
Less: Treasury stock, at cost (4,426 and 5,033 shares, respectively) (75 ) (83 ) -9.6
Total stockholders' equity 45,547 43,303 5.2
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $502,762 $442,729 13.6 %

EVANS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except share and per share data)

Three Months Ended September 30,
20082007% Change
INTEREST INCOME
Loans and leases $6,908 $6,036 14.4 %
Interest bearing deposits at banks 13 156 -91.7
Securities:
Taxable 360 501 -28.1
Non-taxable 353 401 -12.0
Total interest income 7,634 7,094 7.6
INTEREST EXPENSE
Deposits 2,115 2,395 -11.7
Other borrowings 234 235 -.04
Junior subordinated debentures 151 226 -33.2
Total interest expense 2,500 2,856 -12.5
NET INTEREST INCOME 5,134 4,238 21.1
PROVISION FOR LOAN AND LEASE LOSSES 582 283 105.7

NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES

4,552 3,955 15.1
NON-INTEREST INCOME:
Bank charges 597 596 0.2
Insurance service and fees 1,756 1,683 4.3
Net gain on sales of securities - 1 -100.0
Premium on loans sold 2 2 0.0
Bank-owned life insurance 31 151 -79.5
Other 529 448 18.1
Total non-interest income 2,915 2,881 1.2
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,940 2,718 8.2
Occupancy 631 587 7.5
Supplies 51 76 -32.9
Repairs and maintenance 162 163 -0.6
Advertising and public relations 125 68 83.8
Professional services 243 240 1.3
Technology and communications 305 273 11.7
Amortization of intangibles 171 170 0.6
Other insurance 73 93 -21.5
Other 553 474 16.7
Total non-interest expense 5,254 4,862 8.1
INCOME BEFORE INCOME TAXES 2,213 1,974 12.1
INCOME TAX PROVISION 788 559 41.0
NET INCOME $1,425 $1,415 0.7 %
Net income per common share-basic $0.52 $0.52
Net income per common share-diluted $0.52 $0.52
Cash dividends per common share $0.41 $0.37
Weighted average number of common shares 2,755,274 2,746,651
Weighted average number of diluted shares

2,757,972

2,746,956

EVANS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except share and per share data)

Nine Months Ended September 30,
20082007% Change
INTEREST INCOME
Loans and leases $19,515 $17,730 10.1 %
Interest bearing deposits at banks 20 253 -92.1
Securities:
Taxable 1,001 2,374 -57.8
Non-taxable 1,144 1,279 -10.6
Total interest income 21,680 21,636 0.2
INTEREST EXPENSE
Deposits 5,937 7,768 -23.6
Other borrowings 924 898 2.9
Junior subordinated debentures 498 667 -25.3
Total interest expense 7,359 9,333 -21.2
NET INTEREST INCOME 14,321 12,303 16.4
PROVISION FOR LOAN AND LEASE LOSSES 1,814 943 92.4

NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES

12,507 11,360 10.1
NON-INTEREST INCOME:
Bank charges 1,669 1,615 3.2
Insurance service and fees 5,506 5,235 5.2
Net gain (loss) on sales of securities 7 (2,302 ) -100.3
Premium on loans sold 7 7 0.0
Bank-owned life insurance 239 468 -48.9
Pension curtailment gain 328 - -
Other 1,502 1,291 16.3
Total non-interest income 9,258 6,314 46.6
NON-INTEREST EXPENSE:
Salaries and employee benefits 8,649 8,007 8.0
Occupancy 1,835 1,715 7.0
Supplies 180 227 -20.7
Repairs and maintenance 452 442 2.3
Advertising and public relations 335 288 16.3
Professional services 764 765 -0.1
Technology and communications 870 792 9.9
Amortization of intangibles 499 456 9.4
Other insurance 238 273 -12.8
Other 1,562 1,541 1.4
Total non-interest expense 15,384 14,506 6.1
INCOME BEFORE INCOME TAXES 6,381 3,168 101.4
INCOME TAX PROVISION 1,978 605 226.9
NET INCOME $4,403 $2,563 71.8 %
Net income per common share-basic $1.60 $0.94 70.2 %
Net income per common share-diluted $1.60 $0.94 70.2 %
Cash dividends per common share $0.78 $0.71
Weighted average number of common shares 2,750,870 2,740,406
Weighted average number of diluted shares 2,753,534 2,741,111

EVANS BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AVERAGE BALANCE SHEETS AND ANNUALIZED RATES

 (Dollars In thousands)

Three Months EndedThree Months Ended
September 30, 2008September 30, 2007
AverageInterestAverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
BalancePaidRateBalancePaidRate
ASSETS
Interest-earning assets:
Loans and leases, net $370,349 $6,908 7.46 % $299,932 $6,036 8.05 %
Taxable securities 33,140 360 4.35 % 45,402 501 4.41 %
Tax-exempt securities 32,877 353 4.29 % 37,801 401 4.24 %
Interest-bearing deposits at banks 3,086 13 1.69 % 11,302 156 5.52 %
Total interest-earning assets 439,452 7,634 6.95 % 394,437 7,094 7.19 %
Non interest-earning assets:
Cash and due from banks 13,650 11,893
Premises and equipment, net 8,793 8,551
Other assets 30,926 29,639
Total Assets $492,821 $444,520
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW $13,669 $28 0.82 % $10,377 $7 0.27 %
Regular savings 126,324 551 1.74 % 88,701 277 1.25 %
Muni-Vest savings 20,742 96 1.85 % 28,059 291 4.15 %
Time deposits 150,496 1,440 3.83 % 148,808 1,821 4.89 %
Other borrowed funds 29,106 225 3.09 % 24,835 222 3.59 %
Junior subordinated debentures 11,330 151 5.33 % 11,330 226 7.98 %
Securities sold U/A to repurchase 4,710 9 0.76 % 6,193 12 0.78 %
Total interest-bearing liabilities 356,377 $2,500 2.81 % 318,303 $2,856 3.59 %
Noninterest-bearing liabilities:
Demand deposits 79,107 74,973
Other 11,075 9,169
Total liabilities $446,559 $402,445
Stockholders' equity 46,262 42,075
Total Liabilities and Equity $492,821 $444,520
Net interest earnings $5,134 $4,238
Net interest margin 4.67 % 4.30 %
Interest rate spread 4.14 % 3.60 %

Contacts:

Evans Bancorp, Inc.
Gary A. Kajtoch, 716-926-2000
Senior Vice President and Chief Financial Officer
gkajtoch@evansnational.com
or
Kei Advisors LLC
Deborah K. Pawlowski, 716-843-3908
dpawlowski@keiadvisors.com

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.